March’s CPI topped forecasts for a third straight month, heralding a fresh wave of price pressures that may likely delay and Federal Reserve interest rate cuts until later in the year.
The core CPI which excluded food and energy costs, increased 0.4% from February. From a year ago, it advanced 3.8%, holding steady form the prior month.
The overall CPI climbed 0.4% for the month and 3.5% from a year ago, an acceleration from February that was boosted by higher energy prices.
Gasoline and shelter accounted for over half of the overall monthly advance. OER or Owners Equivalent Rent, which is the biggest component of the CPI climbed by 0.4% for a second consecutive month.
Excluding housing and energy, service prices accelerated to 4.8% from a year ago the most since April 2023.
The Treasury market was crushed on the data. The two-year Treasury or the instrument most sensitive to monetary policy surged 20 bps to 4.94%. The benchmark 10-year notes topped 4.5% for the first time since November.
The data caused the dollar to surge, headed toward its biggest advance since March 2023 given the reduced odds of an aggressive Fed.
The data prompted the market to abandon hopes on more than two Federal Reserve interest rate cuts this year.
Equities also came under pressure with the market fearing the recent price pressures may not just be a “blip” or “bump in the road.” Moreover geopolitical jitters resurfaced causing further gains in oil.
Former Treasury Secretary Lawrence Summers reiterated past remarks that “one would have to take seriously the possibility that next rate move will be upwards rather downwards, the likelihood somewhere in the 15% to 25% range.”
Both the Federal Reserve and Wall Street analysts have been wrong for many years. Most thought 0% interest rates would create inflation and an economic boom. It did not. Most thought the most aggressive Fed in history will cause inflation to subside and recession to occur.
Writing the obvious, trends are unfolding which is altering the underlying dynamics, chief amongst them is the collapse global trading networks to where price as the only determinate of purchasing decision is now replaced by availability is the primary determinate of a purchasing decision. The West has weaponized flow of funds and East the production of goods.
On shoring is gaining momentum.
Today is the release of the PPI. Will the PPI validate the CPI? The PPI is expected to rise by 0.3%. The core rate is expected to rise by 0.2%. Year over year the PPI is expected to rise by 2.2%.
Last night the foreign markets were down. London was down 0.24%, Paris down 0.14% and Frankfurt down 0.56%. China was up 0.23%, Japan down 0.35% and Hang Seng down 0.26%.
Futures are down about 0.25% ahead of the PPI as resilient inflation forces the markets to reduce their expectations for Federal Reserve interest rate cuts. The 10-year is off 3/32 at a 4.56% yield.
